Pillar 3a first. You get the same tax benefits, but exercise much more control over your assets and can access them more easily and with much fewer conditions (e.g. no limitations on resales or rentals for properties purchased with pillar 3a). If you become employed again at a later date, you can easily “trasfer” pillar 3a savings to your pension fund (if you want to get a higher pension, for example). I recommend you use the pillar 3a as your primary retirement savings vehicle. Pillar 2 second. If you could save more than the pillar 3a allows for, then the pillar 2 gives you an additional option for tax-deductible saving. As a self-employed person you can either use the LOB, or join a pension fund through an industry association.
The lifelong pension from the pillar 2 has its appeal, especially if you expect to live to a ripe old age. But there is constant talk of lowering both the minimum interest rate on benefits, and the minimum conversion rate. The current 6.8% annual conversion rate (e.g. 6800 francs per year per 100,000 of benefits) already is not hugely attractive compared to average annual stock market returns. And you pay a price for the security of that steady pension by way of limitations. For example, once you begin receiving a pension, you won’t be able to make lump-sum withdrawals (e.g. if you get terminal cancer right after retiring and want to gift the money to friends/family, etc.)
Keep in mind that, besides the unknown future conversion rate, there is also no inflation protection (unlike pillar 1). I.e. even that seemingly safe monthly pension does have a risk.
If a pillar 2 annuity is something you’re interested in, it is possible to join a pension fund a few years before retirement age and then do a buy-in from your income (tax-deductible) and/or a transfer from pillar 3a (tax neutral, can’t split a single 3a account). However, the buy-in or transfer is not considered part of your BVG capital, i.e. there is no mandatory minimum conversion rate.
A private annuity may be another option. I don’t know how they compare overall to available pension funds without BVG capital.
Conventional wisdom for people employed is to contribute 50 k per pillar 3 (+/- some k’s) to stagger the taxes when you start to use them. Obviously it takes about 7 years to get pillar 3 to 50k for an employed person. As I’ll be able to contribute 34k a year would it make sense to open 10 or more in that case?
Pillar 2 second. If you could save more than the pillar 3a allows for, then the pillar 2 gives you an additional option for tax-deductible saving. As a self-employed person you can either use the LOB, or join a pension fund through an industry association.
But if I contribute pillar 2 I won’t be allowed to invest 30+k a year in pillar 3, right? I thought then the max is the same as for employed people.
No, unless you’re working beyond the official retirement age or withdraw pillar 3a before 60 (e.g. for real estate), there are only 5 tax years for withdrawal. I.e. if you had 10 3a accounts, you’d have to withdraw 2 accounts each year, which doesn’t provide any tax benefits compared to withdrawing 1 of 5 accounts each year.
This does mean that you may be hit by a higher capital withdrawal tax rate when retiring. However, more or less evenly split across 5 accounts, the tax rate is hopefully still acceptable in most cantons.
3a foundations also typically limit the number of accounts to 5 per client.
Correct. If you’re contributing to a pillar 2 pension fund, your pillar 3a is limited to the usual 7k a year. That’s why I suggested opening pillar 2 only a few years before retirement (if you want the annuity).
That’s the catch (I meant to add but didn’t get the time earlier today):
The minimum conversion rate on mandatory pension benefits is “too high” for (kind of) “political” reasons. And it’s been that way for a while. Even if it is being decreased in the future, with increasing life expectancy, I doubt it’ll ever become as low to be justified to be actuarily and mathematically “justified” (not as long as there is so much non-mandatory capital in the system).
So we may as well bet on that
Haven’t heard great things. If anyone, it would be the insurance companies - and those will make their money with their products elsewhere (as we’ve seen on thread about insurance products), even if the conversion rate is decent.
That’s right, when you are self-employed. In that case, the only benefit I could see to using the pillar 2 is if the total contributions you could make to your pension fund exceed the maximum pillar 3a contribution for self-employed people. I believe that can be the case, but have to check up on it.
I once did a calculation based on the average premiums and conversion rates of pillar 3a/3b life annuities from Swiss insurers, based on paying 100 a month or so in premiums over your working life. I don’t have the calculation any more, but if I recall correctly, the break-even age was in the range of 85 (meaning every year you live after that age you are making a profit on the insurance). So a pure risk insurance life annuity (not a cash-value life annuity) could possibly be used to insure against the “risk” of extreme longevity. Other than that it doesn’t make financial sense, in my opinion.
Most (but not all) pension funds have higher conversion rates for voluntary benefits than what you get with life annuities.
If history is anything to go by, you will get a better “pension” by way of returns on stock market investments than you will from either pension funds or life annuities. That kind of makes sense, since those people running the pension funds and insurance companies simply invest your money for you, and they have to eat too. So I would personally go with the pillar 3a (for the tax deduction) and invest the pillar 3a assets.
One question that I am missing in this thread is how long you’ll plan to be self-employed and at what point you’ll turn that business into a limited liability company (GmbH/AG, SARL/SA, etc).
At some point of annual profit (>150-250k iirc) left over after all business expenses it becomes a good idea to do that: it’ll be more tax efficient, you’ll get liability protections, to some degree an AG is still considered more “professional”, it’s a requirement for bringing in outside capital, etc etc.
With that, you’ll have to “employ yourself” (= pay 2nd pillar on salary and only have the “small” 3a contribution to pay into).
And long before that point, you’ll want to retain an accountant (trust me on this) whom to buzz these questions off.